The Contribution Model: undermining governance through accounting

AUS understands that the contribution margin (CM) model of internal finance accounting and resource distribution as one of many possible methods for distributing income between different units of the University. Up to set targets, the surplus generated by some units is spent at the direction of the Centre on both vital services and new investments. Beyond those targets, income-generating units may use their surplus to achieve their own goals. Any method of resource distribution may cause perceived injustices between groups, and in that respect the CM model is not unique. However, we are concerned that the CM model is particularly prone to abuse by those who surreptitiously use it to effect de facto policies. We believe that the CM is used to effect ideologically-driven policies without stating those policies explicitly and thus allowing either Council or the Academic Board to properly consult.

CM targets are part practical, part ideological but without proper review
The CM thresholds are set by a formula which has never been subject to external scrutiny. The fact that these margins vary from year to year, sometimes within years, even for the same accounting unit indicates that the CM is fluid. Its secrecy and apparent arbitrariness lends it to being used to support objectives without having to fully articulate those objectives to Council and Academic Board. While this kind of use of the CM can only be speculated on at present, what is certain is that the extremely poor communication around how the different CM targets are determined has lead to significant staff unrest and ongoing morale costs to this institution.

CM is central planning masquerading as the market
AUS understands that the CM is meant to limit or eliminate financial cross-subsidisation within the University. This objective in itself is ideological, because those making the argument have adopted a particular view of how market forces should be applied within a university. They also have determined who is and who is not subject to this kind of market-driven responsiveness. The CM model is foremost a way to pay for units of the University that have no direct income generating capacity. Units such as the Library, IT, Registry, and Facilities Management are essential to the function of the institution, provide real services that are most efficiently delivered by their centralisation, and their value cannot be set by direct market forces. But the CM model has an inherent contradiction. While the Colleges must respond to market forces such as student trends and the priorities of external funders for their incomes, they rely on non-market central planning by management to set both the capacity of services available and the costs of these services which are necessary to deliver on their teaching and research missions. These costs also include any strategic investments made under the direction of senior management.

Hence, to call resource flow from colleges with higher profit margins to those with lower margins a “subsidy” while resource flow from income generating colleges to non-income-generating units “not a subsidy” is semantics. And of course this type of resource flow is legitimate and necessary. It would be absurd if every unit of the University had to generate direct income from the outside as the Colleges do, but it is equally absurd to suggest that the flow of finances between colleges is a kind of internal welfare system while the flow of resources from colleges to other units is not.

Cross-subsidies can never be eliminated. For example, the University put its case to the Press which reported: “[w]ith the ratio of lecturers to students in the arts standing at 19:1 against 34:1 in the College of Business and Economics, there is a related argument that this is about spreading resources more fairly.” [The Press, 11 March 2006.] Business and Economics benefits in other ways from Arts, just as all colleges and other units benefit from each other. For example, every student of Science that successfully completes a course in Philosophy will have learned to write critical essays necessary to both understand and then articulate complex concepts. How does the CM model measure this contribution? When a student advisor in the Science College Office directs a student to an Arts course, how does the CM measure that? In short, it doesn’t. In fact, the CM sets an incentive system that undermines good-of-the-institution behaviour at costs that management has never even attempted to measure much less report to Council.

The types of cross-subsidies measured by the UC CM model are arbitrary and narrow because they only focus on student:staff ratios and net income. Moreover, these measures are only relevant to certain kinds of units from which (e.g. Colleges) and to which (e.g. Registry) monetary resources flow. This type of narrow-minded accounting is similar to that which has dominated in marginalising the value of ecosystem services to economic systems. Not recognizing the costs of pollution and other degrading activities on the environment that sustains industry and agriculture has lead to their socialisation rather than their management. That kind of accounting does not lead to sustainability, a concept to which the University has committed itself. The accounting principles behind the CM simply socialize the costs not measured in the CM model. Those costs are almost invariably borne by students and staff, and will reveal themselves in the long-term destabilisation of the institution.

The Heisenberg Uncertainty Principle in University finances
The accuracy of financial measures seems to vary inversely with the size of the unit being measured. In no example of restructuring in the past few years that we can recall, has it been possible to get solid figures either on actual staffing levels or income. This latest restructuring has produced numerous new examples, with the Change Proposal reporting incorrect staff levels that lead to incorrect staff:student ratios, and with various managers producing different figures at different times. One manager wrote that the: “budgetary estimates have been developed from what we actually do know, but are not 100% accurate in areas such as depreciation, PBRF and overheads.” [Email to HOD in College of Arts from College Manager, 20 February 2008.]

This kind of uncertainty on figures that are used to make absolutely certain decisions on staffing is unacceptable. It is also surprising given that the Colleges, and intra-college financial units, were ostensibly created at a time of financial difficulty to increase accountability. The only reliable figures that management seems to produce are the annual overall accounts provided to Council and the Tertiary Education Commission (TEC). These values are in overall surplus, indicating that the University is successful. More importantly, since financial measures below the University level carry very high error bars, no real case for cross-subsidisation appears valid.

Other ways to address resource imbalance
The AUS recognizes that intervention is needed to achieve an overall financially and functionally healthy university. When maldistributed teaching or administration loads erode research activity and external income, it is both unfair and detrimental to the primary mission of the University. Likewise, we accept that areas experiencing high demand might also be worth investing in, for the long-term value such programmes promise. CM, however, is a blunt and inappropriate instrument to achieve such balance. This is extremely well illustrated by a case the Press prophetically reported about American Studies lecturer Cornelia Sears two years ago: “Sears was hired in 1997 when the ratio in American studies was running at 27:1 as part of a drive to reduce it to 18:1. ‘So, I may well lose my job on numbers that were used to hire me.’” [The Press, 11 March 2006.] Cornelia’s prophecy is now reality. Here already is evidence of the failure of using CM to grow different areas of the University in the short-term. The University is a complex institution that requires more creativity and innovation in the strategies it adopts.

To achieve balance through socially-driven approaches requires management to deeply understand both the institution and the people they manage. Moreover, they must strive to earn the trust of those people. This is clearly at odds with the methods that have dominated at Canterbury [And perhaps at other universities as suggested by Malcolm and Tarling In “Crisis of Identity? The mission and management of universities in New Zealand” (Dunmore Publishing, Wellington, 2007).], where management appear to us to be trying to use job insecurity and economic carrot/stick approaches to create a low-maintenance, hands-off formula that will magically produce institutional stability. AUS calls for management to pursue other means to address workload imbalances and raise the overall productivity of the institution. We stand ready to work toward such methods.

Jack Heinemann
Branch President